hibu Inc. v. Peck

Filing 271

MEMORANDUM AND ORDER granting in part and denying in part 253 PLAINTIFF HIBU INC.'S MOTION TO DISQUALIFY COUNSEL. Plaintiff's motion to disqualify Eric Leon and Kuangyan Huang (Dkt. 253) is granted. Plaintiff's motion to disqualify Mr. NathanTaylor and the law firm of Latham & Watkins LLP is denied without prejudice. Signed by District Judge J. Thomas Marten on 10/5/2017. (mam)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF KANSAS

HIBU, INC.,
Plaintiff,
v.
Case No. 16-1055-JTM
CHAD PECK,
Defendant.

MEMORANDUM AND ORDER
This matter is before the court on plaintiff Hibu Inc.’s motion to disqualify
attorneys Eric Leon, Kuangyan Huang, and Nathan Taylor from representing defendant
Chad Peck, who is employed by Dex Media, in this litigation pursuant to Kansas Rule
of Professional Conduct (“KRPC”) 1.9(a), (b) and 1.10(a)1 (Dkt. 253).

These three

attorneys were formerly associated with Kirkland & Ellis LLP (“Kirkland”). Plaintiff
contends that while Leon, Huang, and Taylor were employed at Kirkland, they could
not provide conflict-free representation to defendant. Plaintiff argues that their conflict
was not removed after they switched to Latham & Watkins LLP (“Latham”). For the
reasons stated below, plaintiff’s motion is granted in part and denied in part without
prejudice.
I.

Nature of the Case

Plaintiff does not seek imputed disqualification of Latham pursuant to KRPC 1.10(b), which would
require a hearing. Chrispens v. Coastal Ref. & Mktg., Inc., 257 Kan. 745, 756–57, 897 P.2d 104, 114 (1995).
“No such requirement exists under MRPC 1.9(a).” Id.
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Plaintiff employed defendant as a sales manager in Wichita and surrounding
markets. Both parties signed an employment agreement on May 23, 2006.
In January 2015, defendant left plaintiff’s employment and began working with
Dex Media—plaintiff’s direct competitor. Based on defendant’s work on Dex Media’s
expansion into Wichita and other Kansas markets, plaintiff commenced this litigation in
February 2016, arguing that defendant breached his employment agreement and
tortuously interfered with plaintiff’s business expectancy.
II.

Kirkland’s Prior Representation of Plaintiff

Kirkland previously represented plaintiff in a lawsuit against Mr. Joseph Walsh,
plaintiff’s former Chief Executive Officer (“CEO”), in which plaintiff sought damages
and injunctive relief against Walsh for: breach of his employment separation agreement;
improper use of plaintiff’s confidential information; making untrue, negative and
derogatory statements about plaintiff and its management; procurement of plaintiff’s
confidential information by improper means; conversion of plaintiff’s confidential
information; aiding and abetting breach of fiduciary duty by other plaintiff executives;
and civil conspiracy.

Plaintiff claimed that Walsh—who is presently Dex Media’s

CEO—obtained confidential material from Messrs. James McCusker, Mark Cairns, and
John Gregory, three senior executives who were employed by plaintiff at that time.
McCusker is now the Chief Revenue Officer of Dex Media. Gregory is a vice president
of Dex Media. Cairns is, or until recently was, Dex Media’s Executive Vice President of
Operations and Client Services.

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During Kirkland’s representation of plaintiff in the Walsh matter, Kirkland had
extensive communications with plaintiff’s senior management and worked closely with
its general counsel. Kirkland investigated Walsh’s conduct and provided guidance as
to the conduct of interviews by plaintiff of potential witnesses, including McCusker and
Gregory.
Kirkland also defended plaintiff in McCusker’s (plaintiff’s former president) and
Cairns’s (plaintiff’s former Chief Operations Officer) lawsuits against plaintiff for
defamation and violation of Pennsylvania’s wage law. These lawsuits followed plaintiff
terminating McCusker’s and Cairns’s employment for providing confidential
information to Walsh and for other reasons.
In a fourth matter, Kirkland served as U.S. counsel to plaintiff and Hibu Group
in connection with their financial restructuring. In the course of that representation,
Kirkland was given access to and reviewed highly confidential, proprietary, and
commercially sensitive information, including information pertaining to plaintiff’s
business strategy, business plans, business practices, historic financial data, financial
projections, product strategy, employee data, debt structure, executory contracts,
contingent obligations, and pending litigation.
Plaintiff claims that Leon’s practice group at Kirkland handled the Walsh,
McCusker, and Cairns cases. Specifically, at least 15 attorneys from both Kirkland’s
Chicago and New York offices were involved in the Walsh litigation generating over
$920,000 in legal fees. Approximately eight Kirkland attorneys were involved in the
McCusker and Cairns matters, and generated over $215,000 in legal fees. Kirkland
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withdrew from representing plaintiff in the McCusker and Cairns matters in late 2014.
The McCusker and Cairns cases were pending when this current litigation commenced.
In the financial restructuring matter, more than 30 Kirkland attorneys were involved,
and Kirkland received over $3,200,000 in legal fees.
On April 4, 2017, Leon and Huang were attorneys with Kirkland, and were
admitted pro hac vice to represent defendant against plaintiff in this case.2 One day
later, plaintiff advised Kirkland that it objected to its representation of defendant.
According to plaintiff, Kirkland referred the matter to its internal committee, and
subsequently informed plaintiff that it would withdraw from this case on April 9, 2017.
On May 17, 2017, approximately five weeks later, Leon and Huang both filed notices of
their withdrawal as counsel for defendant.
After Leon and Huang withdrew from representing defendant, they joined
Latham and again moved to appear pro hac vice on July 7, 2017.3
associated with Latham, moved to appear pro hac vice.

Taylor, also

Magistrate Judge James

granted all three motions on July 10, 2017.
III.

Legal Standards

Ogletree, Deakins, Nash, Smoak & Stewart, P.C. previously represented defendant in this case, but
withdrew on May 23, 2017. Two attorneys from Stinson Leonard Street are local counsel for defendant.
2

Defendant briefly argues that plaintiff’s delay in seeking disqualification warrants denial of this motion.
The court finds no delay as plaintiff objected to Kirkland’s representation on April 5, 2017, the day after
Leon and Huang entered their appearances. On April 9, 2017, Kirkland informed plaintiff that it would
withdraw from the case. Notably, Kirkland took approximately 38 days to prepare and file a two-page
notice of withdrawal for each attorney whereas plaintiff took approximately 21 days to prepare and file a
motion to disqualify supported by a 23-page memorandum and 23 exhibits. Defendant’s argument is
without merit.

3

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“The court has inherent supervisory powers to control attorneys and motions to
disqualify counsel are committed to the court’s sound discretion.” Coffeyville Res. Ref. &
Mktg. v. Liberty Surplus Ins. Corp., 261 F.R.D. 586, 589 (D. Kan. 2009). When deciding a
motion to disqualify, the court reviews the unique facts of the case and balances
competing considerations. McDonald v. City of Wichita, Kan., No. 14-1020-GEB, 2016 WL
305366, at *3 (D. Kan. Jan. 26, 2016). Such considerations include: (1) the privacy of the
attorney-client relationship; (2) the prerogative of each party to choose its own counsel;
(3) and the hardships that disqualification would impose upon the parties and the entire
judicial process. Id. The court is mindful that the parties’ arguments can be misused as
a litigation tactic or technique of harassment. Id. (“A motion to disqualify counsel
deserves serious, conscientious, and conservative treatment.”).
A federal court sitting in Kansas and deciding a motion to disqualify for conflict
of interest must look for guidance to the Model Rules adopted in Kansas and to Kansas
case law construing those rules. See Graham ex rel. Graham v. Wyeth Labs., 906 F.2d 1419,
1422–23 n.5 (10th Cir. 1990). Plaintiff’s motion is therefore governed by KRPC 1.9 and
1.10.
KRPC 1.9 provides, in part:
(a) A lawyer who has formerly represented a client in a matter shall not
thereafter represent another person in the same or a substantially related
matter in which that person’s interests are materially adverse to the
interests of the former client unless the former client gives informed
consent, confirmed in writing.
(b) A lawyer shall not knowingly represent a person in the same or a
substantially related matter in which a firm with which the lawyer
formerly was associated had previously represented a client
(1) whose interests are materially adverse to that person; and
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(2) about whom the lawyer had acquired information protected by Rules
1.6 and 1.9(c) that is material to the matter;
Unless the former client gives informed consent, confirmed in writing.
Disqualification of an attorney is justified under KRPC 1.9 when the facts
demonstrate that “(1) an actual attorney-client relationship existed between the moving
party and the opposing counsel; (2) the present litigation involves a matter that is
‘substantially related’ to the subject of the movant’s prior representation; and (3) the
interests of the opposing counsel’s present client are materially adverse to the movant.”
Weeks v. Indep. Sch. Dist. No. I–89 of Okla. Cty., 230 F.3d 1201, 1212 (10th Cir. 2000). The
burden is on the moving party to show the existence of the conflict. Briggs v. Aldi, Inc.
(Kan.), 218 F. Supp. 2d 1260, 1267 (D. Kan. 2002). If the movant establishes the first two
prongs, an irrebuttable presumption arises that the client has revealed facts to the
attorney that require the attorney’s disqualification. Koch v. Koch Indus., 798 F. Supp.
1525, 1536 (D. Kan. 1992)
KRPC 1.10 determines when a Rule 1.9 conflict is imputed to an entire law firm.
Monroe v. City of Topeka, 267 Kan. 440, 446, 988 P.2d 228, 232 (1999). “In other words,
under Rule 1.10, disqualification results from an attorney’s affiliation with a firm rather
than from a direct personal connection with the client in question.” Id.
(a) While lawyers are associated in a firm, none of them shall knowingly
represent a client when any one of them practicing alone would be
prohibited from doing so by Rules 1.7 or 1.9, unless the prohibition is
based on a personal interest of the prohibited lawyer and does not present
a significant risk of materially limiting the representation of the client by
the remaining lawyers in the firm.
(b) When a lawyer has terminated an association with a firm, the firm is
not prohibited from thereafter representing a person with interests

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materially adverse to those of a client represented by the formerly
associated lawyer and not currently represented by the firm, unless:
(1) the matter is the same or substantially related to that in which the
formerly associated lawyer represented the client; and
(2) any lawyer remaining in the firm has information protected by Rules
1.6 and 1.9 (c) that is material to the matter.
(c) A disqualification prescribed by this Rule may be waived by the
affected client under the conditions stated in Rule 1.7.
(d) The disqualification of lawyers associated in a firm with former or
current government lawyers is governed by Rule 1.11.
IV.

Discussion

Plaintiff asserts that Leon, Huang, and Taylor are disqualified from representing
defendant in this litigation.

Plaintiff does not specifically argue that Latham is

disqualified under Rule 1.10(b), but plaintiff seeks “disqualification of Latham and its
individual lawyers entering an appearance here.” (Dkt. 254, at 22). However, in its
reply, plaintiff only seeks to disqualify Leon, Huang, and Taylor. At this time it is
unclear whether plaintiff seeks to disqualify Latham in its entirety.

Additionally,

motions to disqualify under KRPC 1.10(b) require a hearing—which neither party has
requested—thus, the court will not consider whether the entire Latham firm is
disqualified under KRPC 1.10(b). See Chrispens v. Coastal Ref. & Mktg., Inc., 257 Kan. 745,
756–57, 897 P.2d 104, 114 (1995) (requiring a hearing for disqualification under KRPC
1.10(b), but not for 1.9(a)).
A. Substantially Related
Plaintiff argues that Kirkland’s prior representations of it in earlier litigations are
substantially related to this action. “Matters are ‘substantially related’ for purposes of
this Rule if they involve the same transaction or legal dispute or if there otherwise is a

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substantial risk that confidential factual information as would normally have been
obtained in the prior representation would materially advance the client’s position in
the subsequent matter.” KRPC 1.9 cmt. 3. The court evaluates the similarities between
the factual bases of the relevant representations by “reconstruct[ing] the attorney’s
representation of the former client, to infer what confidential information could have
been imparted in that representation, and to decide whether that information has any
relevance to the attorney’s representation of the current client.” Briggs, 218 F. Supp. 2d
at 1267 (internal quotations and citations omitted).

The court determines what

confidential information and facts ought to have been or would typically be disclosed in
such a relationship. Id. No single test exists; thus, the court determines if a substantial
relationship exists on a case-by-case basis. Flint Hills Sci., LLC. v. Davidchack, No. 002334-JAR, 2002 WL 975881, at *6 (D. Kan. Mar. 21, 2002).
Since 2013, Kirkland has represented plaintiff in four significant lawsuits.
During these lawsuits, plaintiff shared with Kirkland information about plaintiff’s
business and legal strategies relevant to its claims against Walsh as well as defenses to
McCusker’s and Cairns’s claims and possible counterclaims. Plaintiff contends that it
relayed to Kirkland extensive confidential business information, its policies and
practices with respect to maintaining and using confidential information, and
enforcement of its confidential information agreements with former employees.
Plaintiff notes that Walsh, Gregory, and McCusker are identified as potential witnesses
in this case. Furthermore, defendant is a direct competitor of plaintiff, and its interests
in this current lawsuit are materially adverse to plaintiff.
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In this case, just as in the Walsh, McCusker and Cairns matters, plaintiff claims
misappropriation of its confidential commercial information. Kirkland has knowledge
about plaintiff’s business and employment practices. Leon, Huang, and Taylor were
associated with Kirkland at the time it represented plaintiff in the other litigations in
which other Kirkland attorneys gained confidential information and knowledge about
plaintiff’s pattern of conduct. Plaintiff is not required to disclose the actual confidential
information that Kirkland has knowledge of. See KRPC 1.9 cmt. 3 (“A former client is
not required to reveal the confidential information learned by the lawyer in order to
establish a substantial risk that the lawyer has confidential information to use in the
subsequent matter.”).

Plaintiff has met its burden to show that the matter is

substantially related to plaintiff’s prior litigations, and the court next considers whether
the conflict can be imputed to Leon, Huang, and Taylor.
B. Imputation
Kirkland previously represented plaintiff in the Walsh, McCusker, and Cairns
matters as well as in plaintiff’s financial restructuring. Plaintiff refers to Leon and
Huang’s representation of defendant while they were attorneys with Kirkland and
argues that they violated Rules 1.9(a), (b), and 1.10(a). Plaintiff states that Taylor also
was associated with Kirkland prior to joining Latham, however, he did not initially
enter his appearance in this case while employed with Kirkland.
Defendant responds that KRPC 1.9 is inapplicable because Leon, Huang, and
Taylor, along with Latham, never “formerly represented” plaintiff in any matter or
acquired confidential information about plaintiff. Defendant contends that any conflicts
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that might have been imputed to Leon, Huang, and Taylor while associated with
Kirkland evaporated when they moved to Latham.
The court disagrees with defendant’s argument with respect to Leon and
Huang—they entered their appearances on behalf of defendant while still associated
with Kirkland.4 Other Kirkland attorneys represented plaintiff in prior matters against
Dex Media’s senior executives. “Unlike Rule 1.10(b), subsection (a) of Rule 1.10 imputes
disqualification to lawyers practicing together without regard to whether client
confidences actually have been shared.” Monroe, 267 Kan. at 447, 988 P.2d at 232. The
underlying concern is the possibility, or appearance of the possibility, that Leon and
Huang may have received confidential information during Kirkland’s prior
representations that would be relevant to the instant matter. See McDonald, 2016 WL
305366 at *5 (“The purpose behind the imputation is that ‘a firm of lawyers is essentially
one lawyer for purposes of the rules governing loyalty to the client, or from the premise
that each lawyer is vicariously bound by the obligation of loyalty owed by each lawyer
with whom the lawyer is associated.’”).
On the other hand, Taylor’s representation differs because he was never part of
this case as a Kirkland attorney; thus, KRPC 1.9(b) applies to Taylor’s circumstances.
Plaintiff does not allege that Taylor personally represented plaintiff while at Kirkland;
nor does it allege that he personally acquired any confidential information. Therefore,
the court finds that imputation under 1.10(a) is inapplicable to disqualify Taylor.
Plaintiff does not dispute that if Leon, Huang, and Taylor had first undertaken representation of
defendant after they transferred to Latham, Rules 1.9(a) and 1.10(b) would be inapplicable. But Leon and
Huang began representing defendant while at Kirkland, and their conflict did not “evaporate” when they
changed firms.

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V.

Conclusion

Under the present showing, the court finds that Leon and Huang are
disqualified under KRPC 1.9(a) and 1.10(a) because they entered their appearance on
defendant’s behalf while associated with Kirkland. Leon and Huang are presumed to
have been exposed to confidential information about plaintiff regardless of whether
they worked directly on plaintiff’s other litigations handled by Kirkland. However,
Taylor did not represent defendant while he was still with Kirkland, and plaintiff does
not allege that he acquired confidential information about plaintiff from Kirkland.
Therefore, disqualification of Taylor is not necessary at this time.

Furthermore,

disqualification of the Latham firm is not proper without consideration of KRPC 1.10(b)
and a hearing. In the event that plaintiff wants to pursue disqualification of the entire
Latham firm, it must proffer specific confidential information that Taylor, or any other
Latham attorney, acquired about plaintiff, and the court will conduct a hearing on the
matter.
IT IS THEREFORE ORDERED this 5th day of October, 2017, that plaintiff’s
motion to disqualify Messrs. Eric Leon and Kuangyan Huang (Dkt. 253) is granted.
IT IS FURTHER ORDERED that plaintiff’s motion to disqualify Mr. Nathan
Taylor and the law firm of Latham & Watkins LLP is denied without prejudice.

s/ J. Thomas Marten
J. Thomas Marten, Judge

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